03-05-2021, 01:03 AM
DD: Big UK Mortgage Lenders
<!-- SC_OFF --><div class="md"><p><strong>TL;DR:</strong> The UK government is keeping real estate afloat and Lloyds is the best bet to invest in this segment in my unprofessional opinion.</p> <p>This is my first DD but I hope that it provides some useful data points and I welcome your feedback. I've spent a couple of hours on that, but I'm getting sleepy now so there may be some mistakes remaining, invest at your own risk!</p> <p><strong>Context:</strong></p> <p>The new UK budget carves out generous allowances for residential real estate. I have gone into researching the current state of the biggest UK lenders as I believe that they will be able to underwrite new profitable mortgages with the help of the government insuring 95% LTV mortgages against defaults. While I do not know how much the government will charge for those, I do know that the rates for such mortgages are extortionate to the point of making little sense over renting.</p> <p>Personal experience in the UK tells me that people keep telling each other to get on the ladder and that renting is throwing money down the sink. Those same people repeating old wives' tales are unable to produce the ratio between rent prices and underlying real estate prices, which gives me a decent indication that they'd throw their money away as long as they're able to "get on the ladder"</p> <p>I also do think that the housing market will remain stable as it is propped up by the government and as such, I do not think that a big player in the mortgage space would be exposed to a large amount of defaults. If you do not share those conclusions, then this DD may tell you different things than it did for me, but I hope that it will shine a light on what the companies are investing in.</p> <p><strong>The companies:</strong></p> <p><a href="https://i.imgur.com/OQsxXNI.png">Spreadsheet</a></p> <p>NB: Market cap is in millions, not billions as the header would indicate.</p> <p>I've tried to estimate as well as possible how much each of the biggest players is invested in residential real estate. Cells in grey are very rough estimates. I've excluded HSBC as I wasn't interested in investing in them for unrelated reasons. From those calculations it appears that Lloyds not only has a large part of exposure to this segment, but also doesn't pay an excessive amount to borrow money to underwrite those mortgages. The stock also seems good value comparatively and if I am right, and the profits from those new mortgages were to prop up their balance sheet, we could see the stock recover from the covid uncertainty and catch up on the other competitors who have already recovered a bit better.</p> <p><strong>Sources:</strong></p> <p><a href="https://www.statista.com/statistics/727348/uk-banks-gross-lending-market-share/">Biggest UK mortgage lenders</a></p> <p><a href="https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2020/full-year/2020-lbg-fy-results.pdf">Lloyds Annual Report</a></p> <p><a href="https://www.santander.co.uk/assets/s3fs-public/documents/santander_uk_plc_2020_annual_report.pdf">Santander Annual Report</a></p> <p><a href="https://home.barclays/content/dam/home-barclays/documents/investor-relations/ResultAnnouncements/FullYear2020/20210218-BarclaysPLC-FY2020-RA.pdf">Barclays Annual Report</a></p> <p><a href="https://investors.natwestgroup.com/%7E/media/Files/R/RBS-IR-V2/results-center/19022021/natwest-group-annual-report-accounts-2020-v1.pdf">NatWest Annual Report</a></p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/netheranthem"> /u/netheranthem </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/lxx8yx/dd_big_uk_mortgage_lenders/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/lxx8yx/dd_big_uk_mortgage_lenders/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p><strong>TL;DR:</strong> The UK government is keeping real estate afloat and Lloyds is the best bet to invest in this segment in my unprofessional opinion.</p> <p>This is my first DD but I hope that it provides some useful data points and I welcome your feedback. I've spent a couple of hours on that, but I'm getting sleepy now so there may be some mistakes remaining, invest at your own risk!</p> <p><strong>Context:</strong></p> <p>The new UK budget carves out generous allowances for residential real estate. I have gone into researching the current state of the biggest UK lenders as I believe that they will be able to underwrite new profitable mortgages with the help of the government insuring 95% LTV mortgages against defaults. While I do not know how much the government will charge for those, I do know that the rates for such mortgages are extortionate to the point of making little sense over renting.</p> <p>Personal experience in the UK tells me that people keep telling each other to get on the ladder and that renting is throwing money down the sink. Those same people repeating old wives' tales are unable to produce the ratio between rent prices and underlying real estate prices, which gives me a decent indication that they'd throw their money away as long as they're able to "get on the ladder"</p> <p>I also do think that the housing market will remain stable as it is propped up by the government and as such, I do not think that a big player in the mortgage space would be exposed to a large amount of defaults. If you do not share those conclusions, then this DD may tell you different things than it did for me, but I hope that it will shine a light on what the companies are investing in.</p> <p><strong>The companies:</strong></p> <p><a href="https://i.imgur.com/OQsxXNI.png">Spreadsheet</a></p> <p>NB: Market cap is in millions, not billions as the header would indicate.</p> <p>I've tried to estimate as well as possible how much each of the biggest players is invested in residential real estate. Cells in grey are very rough estimates. I've excluded HSBC as I wasn't interested in investing in them for unrelated reasons. From those calculations it appears that Lloyds not only has a large part of exposure to this segment, but also doesn't pay an excessive amount to borrow money to underwrite those mortgages. The stock also seems good value comparatively and if I am right, and the profits from those new mortgages were to prop up their balance sheet, we could see the stock recover from the covid uncertainty and catch up on the other competitors who have already recovered a bit better.</p> <p><strong>Sources:</strong></p> <p><a href="https://www.statista.com/statistics/727348/uk-banks-gross-lending-market-share/">Biggest UK mortgage lenders</a></p> <p><a href="https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2020/full-year/2020-lbg-fy-results.pdf">Lloyds Annual Report</a></p> <p><a href="https://www.santander.co.uk/assets/s3fs-public/documents/santander_uk_plc_2020_annual_report.pdf">Santander Annual Report</a></p> <p><a href="https://home.barclays/content/dam/home-barclays/documents/investor-relations/ResultAnnouncements/FullYear2020/20210218-BarclaysPLC-FY2020-RA.pdf">Barclays Annual Report</a></p> <p><a href="https://investors.natwestgroup.com/%7E/media/Files/R/RBS-IR-V2/results-center/19022021/natwest-group-annual-report-accounts-2020-v1.pdf">NatWest Annual Report</a></p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/netheranthem"> /u/netheranthem </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/lxx8yx/dd_big_uk_mortgage_lenders/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/lxx8yx/dd_big_uk_mortgage_lenders/">[comments]</a></span>Kind Regards R